Blockbuster reassures investors, stock up

LOS ANGELES (Reuters) - Shares of Blockbuster Inc (BBI.N) rose nearly 10 percent on Tuesday after the company was said to have assured investors it would only acquire Circuit City Stores Inc CC.N if it added to earnings, analysts said.

"I think they've softened their stance a little bit and are allaying fears by telling investors they'll only do a deal that seems rational and provides them with synergies that will give them both near- and long-term returns," said Arvind Bhatia, an analyst with Stern Agee, who said Blockbuster discussed its Circuit City plans in New York.

Officials from Blockbuster, the biggest U.S. movie rental chain, were not immediately available for comment.

The company's shares rose 27 cents, or 9.6 percent, to $3.07 a share on the New York Stock Exchange.

Another analyst, who declined to be identified, said he had also heard Blockbuster executives met investors on Tuesday.

"I heard they met with a bunch of big shareholders and told them they'd only pursue Circuit City if it was hugely accretive and its due diligence supports that," the analyst said.

Shares of Blockbuster, which reports quarterly earnings on Thursday, also got a boost after Citigroup analyst Tony Wible said in a note on Monday that the potential deal could provide Blockbuster with increased revenue and cost savings.

Yet Blockbuster's bid continues to draw skepticism from analysts who question the strategic fit of the two struggling companies just as Blockbuster is staging a turnaround.

After resisting requests for months, Circuit City last Friday finally said it would open its books to Blockbuster and its largest shareholder, billionaire investor Carl Icahn.

Blockbuster in April disclosed that it offered in February to buy Circuit City for $6 to $8 a share, or up to $1.3 billion.

Circuit City said on Friday Blockbuster had provided more information including a letter from Icahn stating that, subject to being satisfied with his due diligence, Icahn and affiliates would "stand ready" to buy Circuit City if Blockbuster was unable to arrange financing.

Blockbuster, with its 7,800 stores, has had to modify its business in the face of competition from new video distribution models provided by companies like Netflix Inc (NFLX.O) and Apple Inc (AAPL.O), through its popular iPod media player.

Jim Keyes, a former CEO of 7-Eleven, was hired last year as CEO of Blockbuster to turn it around.

(Editing by Braden Reddall)